Skip to comments.How We Can Keep From Going Broke
Posted on 03/17/2012 3:50:49 AM PDT by Kaslin
Social Security, Medicare, Medicaid and other social insurance programs are bankrupting America. They will produce ever-escalating deficits for as far as the eye can see.
So what can we do about it? All we hear out of Washington are "eat-your-spinach" solutions both from Democrats and Republicans. These involve cutting benefits, forcing doctors to ration health care, etc. Naturally, the beneficiaries resist such change.
My colleagues and I at the National Center for Policy Analysis have been thinking about a different approach. Reform of entitlement programs should be a win-win proposition. That is, it should be good for the individual who agrees to accept fewer government benefits as well as for the taxpayers.
Here is part of the idea. People of any age should have the choice to opt out of social insurance in favor of alternatives that better meet their individual and family needs. In particular, they should be able to substitute assets and arrangements they have voluntarily chosen, and that they own and control, for the government systems they are now forced to be part of. In particular:
People should be able to substitute private savings, private pensions and annuities, and private insurance for participation in Social Security.
They should be able to substitute private insurance and private health savings for participation in Medicare and for participation in the federalized health care system sometimes called ObamaCare.
They should be able to substitute private disability insurance for participation in the federal disability program.
They should be able to substitute private savings, private pensions and annuities, and private insurance for participation in Medicaids long-term care insurance.
At their place of work, employees and their employers should be free to choose private unemployment insurance arrangements, private disability insurance and private alternatives to workers compensation.
There is only one general condition that must govern these choices: They must not increase the expected burden for other taxpayers. This means (1) there must be a reasonable expectation that the direct tax burden for others will not rise as a result of an individuals opting out and (2) there must be a reasonable expectation that the individual will not try to return to the government program (thus creating an additional burden for everyone else) if the private option turns out to be disappointing.
How is it possible to enact reforms that make everybody better off?
Here is one way. When the Social Security and Medicare Trustees calculate the unfunded liabilities in those two programs, they discount future taxes and future benefits at a rate of interest equal to the federal government's long-term borrowing rate. Historically that has been about 3 percent. But when individuals borrow, they typically pay a much higher rate. Some people, for example, are paying double-digit rates on their credit card debt. If individuals evaluate Social Security's promised benefits at a higher discount rate than the government (on behalf of taxpayers) uses, then they will place a lower value on those benefits.
Take a man who has just reached the retirement age and has a life expectancy of about 20 more years. If he evaluates his expected Social Security benefits using a discount rate of, say, 6 percent, he will value a 20-year stream of expected benefits at about 60 percent of the cost to the government. If the retiree's discount rate is 9 percent, he will value the benefits at only one-third of its cost to the government.
Continuing with that last example, let's say the government offers the retiree a lump sum, upfront cash payment equal to half the present value of his expected future benefits (evaluated at a 3 percent real rate of interest). Since the offered sum is substantially more than the value the retiree places on the income stream it will replace (evaluated at 9 percent), the retiree is much better off. And the government will have cut its liability in half!
This is only one of a number of ways we have identified in which win-win changes are possible. Yet if people agree to take less from the government, what will the private alternative be?
More than 21 million workers have a defined-benefit pension plan and 46 million are building retirement assets in IRA, 401(k), 403(b) and other defined-contribution accounts. In addition to private employer-sponsored plans, many workers can look forward to a military pension or other government retirement benefits. About 27 million workers have a promise of post-retirement health care benefits from an employer and millions of veterans will have access to VA health care benefits. All of these programs can potentially substitute for promises made under Social Security and Medicare.
Take the 44 million workers who have private pension plans insured by the federal Pension Benefit Guarantee Corporation (PGBC). The assets of these plans are invested in stocks and bonds and other assets. However, should the investments fail to pan out or (a much greater risk) should the employers who sponsor these plans go bankrupt and become unable to keep making the required contributions, the PGBC promises a minimum benefit to the retirees. Could this minimum benefit serve as an acceptable substitute for whatever we hope to accomplish through Social Security? If the answer is yes, then we should consider making a lump sum payment to these workers today in return for their agreement to forgo Social Security benefits in the future. Alternatively, we could consider a permanent reduction in their payroll tax rates.
Could health care coverage from the Veterans Health Administration serve as an acceptable substitute for the minimum health insurance we want people to have under Medicare? Would an annuity from a major financial institution or a promise of pension or health care benefits from a state or local government count as acceptable alternatives? Again, if the answer is yes, then we could consider making these workers a financial offer to buy them out of their right to receive some or all of their Social Security and Medicare benefits.
What about private savings? If they are to serve as acceptable substitutes there would probably have to be some assurance that the funds would not be squandered or gambled away. Part of the requirement might be that the funds be held by reputable financial institutions and that they be managed according to prudent investment rules. There would also have to be rules governing the rate of withdrawal during the retirement years and a general prohibition against putting the asset up as collateral for loans or other indebtedness.
All of this is doable, however, if only Congress decides it is time to act.
Good ideas....but he is talking about Congress actually doing something like these things???
Odds are better that Ron Paul being elected POTUS
With the current GOP leadership? Not likely
The plan is to intentionally collapse the system and reorganize the country (new constitution) in a similar manner to how the USSR was restructured into Russia and its component states.
I’m not an economist, but I think being in debt for 15 TRILLION and not even being able to borrow enough money from China to pay the interest is pretty much my definition of being bankrupt already.
There was a point where preventative measures could have been taken. That time has long since passed. Fixing the problem would require radical budgetary measures. The leadership isn’t up to the task and doesn’t want to fix the problem anyways. They want a crisis to generate a demand for more destructive government control.
“All of this is doable, however, if only Congress decides it is time to act.”
Congress will act when pigs fly! Fools all.
All those mental and actuarial gymnastics are worth little if the government at all levels isn’t going to give those elderly who burn through that early access a baseline of support.
And we should trust a government agency to administer these investment rules?
It sounds as though the writers swung a little leftward in this closing paragraph. "We're from the government, and we're here to help you."
2. Get rid of the adult diaper-wearing types who are on disability. Disability should only be paid to people who have worked for years, 10 at a minimum. Perhaps the government could purchase disability insurance from private companies who would at least have some incentive to control costs. The way it is now the government has no incentive to deny a 'disabled' claim. It's not their money.
Congress has been acting as RINOS (Republicans Implementing Nuances Of Socialism), 'Rats (Socialists), diseased 'Rats (Totalitarians).
It's time for we the people to act.
DEFUND socialist collectives, foreign and domestic.
DISMANTLE domestic socialist programs.
DEPOPULATE socialists/totalitarians from the body politic.
Make legislatures (state and federal) part-time jobs with no benefits...no retirement, no healthcare, no pension, no special privileges, no insider trades, no staff, no interns. Make these POS politicians get a job and do something productive not "progressive".
Above all, if you wish to be strong, begin by rooting out every particle of socialism that may have crept into your legislation. This will be no light task. - Frederic Bastiat 1801-1850
--That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.
Alter it. C'mon, November!
1. Government takeover of the health care system, for the purpose of: (a) controlling fees paid to doctors, and (b) rationing care.
2. Deliberate understatement of inflation figures, for the purpose of ensuring that future benefits for Social Security and even private pensions are eroded by true inflation.
3. Through a combination of exporting industries and importing cheap labor, ensure that the U.S. standard of living doesn't change very much ... so most people don't even notice what's going on.
Im 59. I propose that Social Security be phased out over a generations time. Our founders never envisioned a government that imprisoned it's older citizens by making them wards of the state via government handouts. That is really what social security, medicare, etc. have become.
Ending it won't be easy but can be done if a solution can be found that everyone, including the current recipients, the taxpayers, and the politicians, can accept. Perhaps one way is to do the following:
Step 1 would be to freeze current benefits to those on the receiving end now and end cost of living increases.
Step 2 would be to redefine beneficiaries to only those who have paid into the system, eliminating 25% of the benefit amount over a four year period to those who dont belong.
Step 3 would be to offer a one-time cash incentive buyout to those who are within ten years of being eligible to receive benefits including a provision that they will never have social security taxes taken from their checks again as long as they live. This provision ending social security taxation would make everyone in this group an extremely valuable resource by employers who want experience and a tax break. This would also lower the long-term obligations being faced by those in the younger generations and allow more of their money to eventually go toward their own private retirement accounts that they would own.
Step 4 would be to redefine benefit levels for those who fail to accept the buyout offer. They have a choice, the buyout or whatever results from the redefinition committee.
Those who are between ten and twenty years away from receiving benefits will have their social security taxes lowered a little to help them cope with the redefined benefit levels they will receive. This also frees up additional money for them to put aside to make up the difference. Perhaps some sort of "buyout" could be offered to these folks as well but not as much as to those closer to retirement.
Anyone more than twenty years away from being eligible to receive benefits will not be able to collect anything from social security. Their social security taxes will be decreased as current recipients die off over time until one day its simply over and done with.
This approach has everyone giving a little and getting something positive in return. Its the only way to get full buy-in.
The real problem here is this is, at its root, a failure of self-governance. The problem is a citizenry that refuses to accept reality and can't bear the thought of having someone tell them they can't afford their delusional expectations. This is why nobody in government wants to do what is necessary (on almost any issue). The candidate who stands up and tells people they can't afford their government-paid goodies will always lose to the candidate who tells people he can sh!t gold bricks and urinate an unlimited supply of cheap gasoline.
Again: This is not an American problem, it's one of the flaws of self-governance. That's why it's endemic to each and every Western nation to one degree or another. When you really look at it objectively, the truth of the matter is that we're all Greeks.
Yep - all the "shoulds" the author listed are irrelevant as long as Dims and RINOs are "representing" us.
The author of the posted article said: "People should be able to substitute ..."
The author is mistakenly requiring a degree of responsibility on the individual that has never been required of the government. People who don't save for their futures deserve the consequences. They are not to be pitied but are to be used as examples for the next generation. Even four-year-olds are able to understand the fable of the grasshopper and the ant.
Minimal inflation protection, sure. Just design the plan so as to get government out of the old age protection business at a reasonable period of time.